CURRENT REPORT FOR ISSUERS SUBJECT TO THE
1934 ACT REPORTING REQUIREMENTS
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
December 30, 1999
(Date of Report)
FIRST CHOICE HEALTH NETWORK, INC.
(Name of Small Business Issuer as Specified in its Charter)
Commission File No. 0-23998
WASHINGTON 91-1272766
(State or Other Jurisdiction (I.R.S. employer
of Incorporation) identification number)
601 UNION STREET, SUITE 1100
SEATTLE, WASHINGTON 98101
(Address of Principal Executive Offices,
Including Zip Code)
Registrant's Telephone Number, Including Area Code:
(206) 292-8255
Item 5. Other Events
On December 20, 1999, First Choice Health Network, Inc.
executed a participation agreement with University of Washington
Academic Medical Center to become a participant in the administration,
operations and any incentives bestowed upon any shareholders in
First Choice Health Network effective January 1, 2000. First
Choice offers and operates a preferred provider organization and a
managed care delivery system for cost-effective, quality health care
benefits, and for comprehensive health care claims processing and
administration. The agreement between the two companies consisted
of the following transaction as described in the paragraph below.
University of Washington Academic Medical Center shall pay the
affiliation fee of $2,520,000, payable $1,260,000 upon execution of
this Agreement and the remaining $1,260,000 will be paid in three
equal payments of $420,000 due annually for three years plus interest
at five percent (5%).
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
10.23 Participation Agreement dated as of December 20,
1999, between Registrant and University of Washington
Academic Medical Center, and related Promissory Note
in the aggregate principal amount of $1,260,000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIRST CHOICE HEALTH NETWORK, INC.
Date: December 30, 1999
By: / s /David Peel
David Peel
Senior Vice President of Finance
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
PARTICIPATION AGREEMENT
(University of Washington Academic Medical Center)
THIS IS A CONTRACT executed as of December 20, 1999, and effective
January 1, 2000, between FIRST CHOICE HEALTH NETWORK, INC., a
Washington corporation (_First Choice_) and the University of
Washington (_UW_), an agency of the State of Washington, whose
affiliated providers include the University of Washington Medical
Center (_UWMC_); Harborview Medical Center (_HMC_); The Seattle
Cancer Care Alliance (_SCCA_), a Washington nonprofit corporation;
TheAssociation of University Physicians /d/b/a/ University of
Washington Physicians (_UWP_), a Washington nonprofit corporation;
The Association of CHRMC and University Physicians /d/b/a/
Children's University Medical Group(_CUMG_), a Washington nonprofit
corporation; and UW Physicians Network (_UWPN_), a Washington
nonprofit corporation; collectively the University of Washington
Academic Medical Center (_UWAMC_).
Recitals
A. First Choice offers and operates a preferred provider organization
and managed care delivery system for cost-effective, quality health
care benefits, and for comprehensive health care claims processing
and administration.
B. The owners of First Choice are physicians and hospitals.
C. UW operates hospitals in King County, Washington, and employs
faculty physicians who teach and through UWP and CUMG, provide
medical services to patients at UW-approved sites of practice.
D. UW has determined that participation in the delivery system operated
by First Choice will further UW purposes by:
1. Making the UW and its affiliated providers accessible to as
many members of the public as possible, including First Choice's
participants who constitute a significant proportion of the
patient population in King County and who otherwise have only
limited access to the UW And the UWAMC;
2. Strengthening the UW and ensuring continued and enhanced access
to patient populations, including First Choice's participants,
to support the general teaching and research missions of the UW;
3 Providing continued and enhanced economic strength to support the
infrastructure of the UW and to facilitate continued innovation in
patient care and program development;
4. Enhancing the service mission of the UW in Washington, Wyoming,
Alaska, Montana, and Idaho (_WWAMI Area_) by providing access to a
substantial regional network of physicians, clinics, hospitals, and
the UWAMC to share treatment protocols and other services developed
by UW institutions;
5. Providing enhanced opportunities to bring research related to
patient care to the bedside, thereby enhancing opportunities to
develop innovative and more effective therapies and patient care
protocols;
6. Enhancing UWAMC's ability to fulfill its responsibility to provide
clinical training in all branches of medicine; and
7. Through this Agreement, providing UW an opportunity to participate
in future decisions regarding health care insurance offerings,
coverage, costs, and policies, such UW involvement to benefit the
general public that the UW and UWAMC serves.
E. UW wishes to participate in First Choice and for UWAMC entities to
participate as providers in the delivery system operated by First Choice
on the terms and conditions of this Agreement. First Choice desires that
UW and UWAMC entities so participate.
Agreement
Accordingly, the parties agree as follows:
1. Affiliate. By executing this Agreement and paying the affiliation fee
required herein, UW shall be entitled to the rights and benefits provided
for herein.
2. Fee. The affiliation fee shall be $2,520,000, payable $1,260,000 upon
execution of this Agreement and the remaining $1,260,000 on an
installment basis pursuant to the terms of a Promissory Note (the _Note_)
in the form attached hereto as Exhibit A. Interest shall accrue on the
unpaid principal balance at the rate of five percent (5%) per annum until
paid in full.
UW's obligation to make future outstanding payments pursuant to the terms
of the Note may be terminated by UW at any time upon thirty (30) days' written
notice to First Choice under any of the following circumstances:
(a) If First Choice is adjudicated bankrupt, becomes insolvent, meaning
unable to pay its normal bills in the ordinary course of business,
voluntarily files for bankruptcy or other similar arrangement, or if
a receiver or trustee is appointed for First Choice for any similar
reasons;
(b) If the federal or state government establishes a single payor system
or method for reimbursement or payment for health care services in
the State of Washington or establishes some other type of health
care delivery system that eliminates the need for the managed care
delivery system offered by First Choice;
(c) If First Choice assigns, as the result of merger or acquisition, its
rights or obligations under this Agreement or any First Choice
Provider Organization Service Agreement, Health Care Facility
Service Contract, or Preferred Provider/Group Contract or similar
arrangement with any UWAMC institution or provider, or upon a sale
of substantially all of the assets of First Choice or if more than
50% of the Class B stock in First Choice is transferred to parties
other than existing Class B shareholders; unless there has been
prior written consent of UW to such assignment of obligations under
this Agreement or to such sale of assets or transfer of Class B
stock;
(d) If UW is able to prove that First Choice has taken material action
which is detrimental to any UWAMC institution or provider's interest
as a contracting hospital or provider for First Choice enrollees
such as authorizing significant dividends for Class _A_ shareholders
but not Class _B_ shareholders;
(e) If First Choice discontinues its Health Care Facility Service
Contract or similar agreement with any UWAMC entity;
(f) If the state auditor or a court of competent jurisdiction determines
that this Agreement violates federal or state law;
(g) If the number of persons covered under group plans with which First
Choice has contracted to provide managed care falls below 500,000;or
(h) If First Choice fails to maintain provider contracts with UWAMC
affiliated physician groups and clinics (except as otherwise agreed
by the parties) after the effective date of this Agreement.
In the event of such termination of payment, UW shall not be obligated
for any installment obligations under the Note arising after the expiration of
the thirty (30) day notice. In the event UW so elects to terminate further
payments, UW shall be entitled to no refund or offset for any sums already
paid to First Choice.
In the event that UW withdraws from First Choice within six (6) months
before or after events described in paragraph c or (d) above, then First
Choice shall pay to the UW a distribution, treating the UW affiliation fee as
if, on the effective date hereof, it had been used for the purposes of
purchasing 5800 share of Class B stock of First Choice (adjusted for any
intervening stock splits, redemptions, or recapitalizations, but not for any
intervening stock sales or purchases). The distribution shall equal the fair
market value of such adjusted shares of Class B stock of First Choice. Any
such distribution shall be first applied to any sums still owed under the Note
whether the Note payment is due or not. No equivalent distribution payment
will be made to UW until the Note is fully paid (taking into account the
application described in the preceding sentence).
If UW terminates payments due under the Note, this Agreement terminates
on the effective date of the Note payment termination.
3. Provider and Facility Contracts. During the period January 1, 2000,
through January 1, 2003 and thereafter as mutually agreed: (1) First
Choice agrees to enter into a Health Care Facility Service Contract with
UWAMC hospitals, including but not limited to UWMC and HMC, the Contract
to be substantially in the form attached hereto as Exhibit B; (2) First
Choice agrees to contract with UWAMC physician groups to provide medical
services; (3) First Choice agrees to contract with other UWAMC entities,
including without limitation UWPN and SCCA; (4) First Choice will not
require any UWAMC institution or provider to give First Choice rates for
services rendered below the lowest rates those institutions or providers
extend to other non-governmental payors; and (5) First Choice will not
unfairly discriminate against UWAMC institutions or providers with
respect to other shareholders or affiliated public hospital districts in
its promotional efforts. Further, First Choice agrees to negotiate
amendments to, and/or renewals of, the Contracts referenced in this
Section 3 with each UWAMC entity in good faith.
4. Securities. It is not the intent of the parties that this Agreement or
the relationship between the parties is a security as contemplated under
state and federal securities laws.
5. Representations of First Choice. First Choice hereby represents that:
(a) First Choice is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington.
(b) The execution and delivery of this Agreement and consummation of the
transaction contemplated by this Agreement have been presented for
approval by the Board of Directors of First Choice and this Agreement
constitutes a valid and legally binding obligation of First Choice.
(c) First Choice has provided true and accurate copies of the following
documents to UW: current Articles of Incorporation and Bylaws of
First Choice; a list of Class A shareholders of First Choice
(substantially correct but because of the large number of physicians
and frequent physician changes is not representative as totally
accurate); a list of Class B shareholders of First Choice;
shareholder agreements with Class B shareholders; form shareholder
agreement with physicians; affiliation contracts with public
hospital districts; tax returns for the past five years; audited
financial statements for the past three years including the
management representation letter; unaudited financial statements for
the period ending July 31, 1999; a document indicating that First
choice reasonably estimates it currently has contracts with group
plans covering approximately 1,220,000 persons in the UWAMC's
market; and a list of 521 individual physicians and 22 physician
groups that have provider contracts with First Choice. As of the
execution date of this Agreement, the documents show what each
purports to show and are substantially correct; the unaudited
financial position of First Choice through the date this Agreement
as provided by First Choice is not materially adversely different
than the financial position of First Choice as reflected in the July
31, 1999 unaudited financial statements. First Choice has
substantially complied with and is not in default in any material
respect under any laws or agreements to which First Choice is a
party.
d)No lawsuits or governmental investigations are currently pending
against First Choice and there are no lawsuits threatened but not
yet filed that are not covered by insurance against First Choice.
6. Representations of UW. UW hereby represents that:
(a) UW has received and carefully read a copy of the documents listed in
Paragraph 5(c) of this Agreement;
(b) UW acknowledges that UW has been offered an opportunity to ask
questions of, and receive answers from First Choice, its President,
Gary R. Gannaway, and its Chief Financial Officer, David Peel,
concerning the Company and its business and that any request for
such information has been fully complied with by them as well as any
other employees of First Choice to whom questions may have been
directed;
(c) UW has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of
contracting with First Choice;
(d) UW has adequate means of providing for the current needs of its
business and operations and possible contingencies, and UW
acknowledges that it will not have ready access to funds paid to
First Choice;
(e) First Choice has made no representations or warranties other than
stated in this Agreement in connection with UWAMC's entering this
contract and all prior discussions are merged into the terms of this
Agreement and the accompanying Provider Agreement.
(f) This Agreement has been approved by the Board of Regents of the UW.
7. Restrictions on Transferability of Interest. Although First Choice is a
reporting company under Section 12 of the 1934 Securities and Exchange
Act, UW realizes that its interest in First Choice is an index of
membership and participation in First Choice's business operations and is
not for investment purposes and that such interest in First Choice is
not, and will not be registered under the Securities Act of 1933, as
amended (the _Act_), or under the securities laws of any state. UW also
understands that First Choice has not agreed to and is not required to
register UW's interest in First Choice under the Act or any applicable
state securities laws. UW understands that the interest in First Choice
which UW has acquired must be held indefinitely unless terminated in
accordance with this Agreement and may not be transferred or sold except
pursuant to Section 12 c hereof.
8. Participation in Administration. UW shall receive notice of, and shall
have the right to attend and participate in, all meetings of the
shareholders of First Choice, but shall have no right to vote at such
meetings. UWAMC employees and physicians may from time to time serve as
directors of First Choice or on its committees, and as such, they shall
have voting rights at least equivalent to those of other similarly
situated persons. Such participation shall not be deemed participation
by UW, and UW shall not be subject to any additional costs, duties or
liabilities as a result of any such participation: provided, that
solely for its own purposes First Choice may determine that any such
participant shall be a _hospital_ representative or a representative of
a physician group.
9. Participation in Operations has not been, and will never be a
shareholder or member of First Choice or have any rights or obligations
with respect to First Choice except as set forth in this Agreement and
such other agreements as may be executed hereafter. Subject to the
foregoing, UW agrees to participate in the operations of First choice on
the terms and conditions of this Agreement and any agreements to be
executed hereafter. Nothing herein shall obligate UW to offer, introduce
or maintain services or facilities of any type or kind, or interfere with
UW's obligations to provide medical research and education, and patient
care service for persons in the WWAMI Area. UW agrees to participate in
First Choice's Utilization Management Program and to make use of First
Choice's administrative services as the parties may from time to time
agree. Both First Choice and UW are aware of the recurrent changes in
health care reimbursement laws and practices, and the inevitability that
First Choice will be required to make changes in its operating plans and
practices to respond to competitive and other pressures. To the extent
applicable given UW's status as a state agency, UW shall follow the
corporate Articles of Incorporation, Bylaws, Rules and Regulations of
First Choice as now exists and hereafter amended. UWAMC entities shall
maintain Preferred Provider/Group Contracts and Health Care Facility
Service Contracts with First Choice but shall not be required at any time
to participate as a provider in the First Choice Health Plan except with
the mutual consent of both UWAMC and the First Choice Health Plan, which
consent may be withheld, with or without cause, in the sole discretion of
either party.
10.Participation in Incentives. UW shall participate in any incentive or
reward program established by First Choice on the terms and conditions
thereof. The formula for determining any incentive or reward program
shall not be less favorable to UW than to any hospital that is a
shareholder of First Choice. For this purpose, if incentives or rewards
for shareholder hospitals shall be based on their equity contributions or
membership fees or both, the incentives and rewards for UW shall be
calculated as if UW owned 5800 shares of Class B stock (adjusted for any
intervening stock splits, redemptions, or recapitalizations, but not for
any intervening stock sales or purchases). Under no circumstances will
UW be required without its express consent (which consent may be
withheld, with or without cause, in its sole discretion and regardless of
any capital calls or other payments made by Class B Shareholders or other
participating hospitals) to make any payment to or for First Choice or
its successors or assigns, or on account of its operations other than the
affiliation fee. UW agrees to accept the risk that its cost for services
provided to First Choice subscribers may exceed its reimbursement from
First Choice for providing such services. UW agrees that it will not
seek recovery from subscribers (or from the employees and dependents of
subscribers) for its costs not reimbursed by First Choice, except to the
extent provided by the contracts between First Choice and its subscribers
or between First Choice and UWAMC entities, or as otherwise permitted by
law or regulations. If First Choice at any time pays any dividends on
its stock to its hospital shareholders, or makes other distributions
(including a liquidation or dissolution distribution) to hospitals in
respect of its stock, it shall make an equivalent distribution to UW.
Solely for purposes of such distributions, the UW affiliation fee shall
be treated as if, on the effective date hereof, it had been used for the
purposes of purchasing 5800 shares of Class B stock of First Choice
(adjusted for any intervening stock splits, redemptions, or
recapitalizations, but not for any intervening stock sales or purchases).
Any distribution made whether for reason of incentive, reward, dividends,
merger, sale or dissolution distribution or otherwise, shall be first
applied to any sums still owed under the Note whether the Note payment is
due or not. No equivalent distribution payment will be made to UW until
the Note is fully paid (taking into account the application described in
the preceding sentence). Further, except as specified under Paragraph 2
of this Agreement, no payment will be made if UW has given First Choice
notice of termination as permitted in Paragraph 2 of this Agreement.
11.Termination. In addition to terminating pursuant to Section 2 of this
Agreement, this Agreement shall terminate on the same day that any
Health Care Facility Service Contract or Preferred Provider/Group
Contract between First Choice and the UWAMC entities terminates. Upon
such termination, all such Contracts shall terminate and First Choice
will pay UW an amount equal to the amount that, under the Articles and
Bylaws (as amended to the first day of the calendar year in which the
termination occurs) of First Choice, it would pay a withdrawing hospital
shareholder which, on the date of termination, owned 5800 Class B
shares of First Choice (adjusted for any intervening stock splits,
redemptions, or recapitalizations, but not for any intervening stock
sales or purchases). Such payment shall be made at the time and in
the manner specified in the First Choice Articles of Incorporation and
Bylaws as in effect on the date of the payment.
12.Miscellaneous.
(a) Other Agreements. The parties understand and agree that they
will from time to time enter other agreements, including
provider contracts, pursuant to this Agreement.
(b) Amendments. This Agreement may be amended or modified only by
a written agreement signed by the parties.
(c) Assignment. Neither party may assign any of its rights or
obligations under this Agreement without the prior written
notice of the other; provided, that UW may without consent
assign all or any of its rights and obligations hereunder
to any entity wholly owned or controlled by it.
EXECUTED the day and year first above written by:
FIRST CHOICE HEALTH NETWORK, INC.
By / s /Gary R. Gannaway
Gary R. Gannaway
President
THE UNIVERSITY OF WASHINGTON
By / s /Paul G. Ramsey By / s / Weldon Ihrig
Paul G. Ramsey, M.D. Weldon Ihrig
Vice President for Medical Affairs Executive Vice President
and Dean of the School of Medicine
Approved as to form:
By / s /Steve Milam
Steve Milam, Senior Counsel,
Assistant Attorney General for the
State of Washington and the University
of Washington
PROMISSORY NOTE
$1,260,000 December 20,1999
Seattle,Washington
University of Washington, an agency of the State of Washington
(_Maker_),for value received, hereby promise to pay to the order of
First Choice Health Network, Inc. (_Holder_) at 600 Union Street,
Suite 1100, Seattle, Washington,98101-1838, or at such other place
as the Holder may from time to time designate, the principal sum
of One Million Two Hundred Sixty Thousand Dollars($1,260,000) in
lawful money of the United States of America, together with
interest on the unpaid balance from the date of this Note, until
paid, at a rate of five percent (5%) per annum commencing January 1,
2000. This Note is given in accordance with the terms and
conditions of that certain Participation Agreement (_Agreement_)
of even date herewith between Maker and Holder.
1. Payment of Principal and Interest. Payment of the
principal and interest of this Note shall be made as follows:
Date Amount
January 1, 2001 $420,000
January 1, 2002 $420,000
January 1, 2003 $420,000
All payments made shall be applied first to the payment of
accrued interest and then to the reduction of the then unpaid principal
balance of this Note. The entire principal balance of this Note and all
unpaid accruediinterest thereon shall in any event be due and payable in
full on January 1, 2003. The provisions in this section with respect to
payment are all subject to Maker's right to terminate its outstanding
obligations as set forth in the Participation Agreement which is hereby
incorporated by reference.
2.Early Payment. Maker shall have the right to pay any amounts
due hereunder in whole or in part at any earlier time or times
without premium or penalty, except that said prepayment shall be
applied first against accrued interest and then against
principal, and any such prepayment shall be applied first to
the last payment falling due hereunder.
3.Default; Acceleration. In the event Maker has failed to make
any payment of principal or interest required to be made hereunder
on the payment date prescribed and such default has not been
cured by maker within ten (10) days after the mailing of notice
by Holder of such default, then all principal and accrued interest
owing hereunder shall at Holder's option become immediately
due and payable, without presentment, demand or further notice
of any kind. Acceleration of this Note shall not be
applicable if, but only if, Maker has terminated its
obligations to make outstanding payments hereunder pursuant to
the Participation Agreement.
4.Source of Payment and Lien of Note. This Note is unsecured and
is payable solely out of the Gross Revenue of the Maker and
is not a general obligation of the Maker.
5.Waiver. Maker and all endorsers, sureties, and guarantors
hereof, hereby jointly and severally waive presentment, demand
for payment, notice of dishonor, notice of protest, protest,
and all other notices or demands in connection with the
delivery, acceptance, performance, default, endorsement or
guaranty of this Note.
6.Failure to Exercise Rights. No delay or failure on the part of
Holder to exercise any power or right shall operate as waiver
thereof and such rights and powers shall be deemed continuous,
nor shall a partial exercise preclude full exercise thereof;
and no right or remedy of Holder shall be deemed abridged or
modified by any course of conduct and no waiver thereof shall
be predicted thereon, nor shall failure to exercise any such
power or right subject Holder to any liability. All rights of
Holder hereunder are cumulative and in addition to any other
right of Holder under any other agreement or instrument to which
Maker is a party.
7.Governing Law. This Note shall be construed in accordance with
the laws of the State of Washington.
8.Assignment. Maker may not delegate or assign its rights
or obligations hereunder without the prior written consent of
Holder.
IN WITNESS WHEREOF, Maker has executed this Promissory Note as
of the 20th day of December, 1999.
MAKER:
UNIVERSITY OF WASHINGTON, an
agency; of the State of Washington
By / s /Weldon Ihrig
Weldon Ihrig
Executive Vice President
